First Hawaiian Bank (FHB)

Hawaiian banking company First Hawaiian (NASDAQ:FHB) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 7.8% year on year to $226.4 million. Its GAAP profit of $0.59 per share was 14% above analysts’ consensus estimates.

Company Overview

Dating back to 1858 as Hawaii's oldest bank with deep roots in the Pacific island communities, First Hawaiian (NASDAQ:FHB) operates a full-service community bank providing deposit accounts, commercial and consumer loans, credit cards, and wealth management services across Hawaii, Guam, and Saipan.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

First Hawaiian's competitors include other regional banks operating in its markets such as Bank of Hawaii (NYSE:BOH), Central Pacific Financial (NYSE:CPF), and larger national banks with presence in Hawaii like Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Over the last five years, First Hawaiian Bank grew its revenue at a tepid 2.9% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. First Hawaiian Bank’s recent performance shows its demand has slowed as its revenue was flat over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, First Hawaiian Bank reported year-on-year revenue growth of 7.8%, and its $226.4 million of revenue exceeded Wall Street’s estimates by 3.7%.

Net interest income made up 75.8% of the company’s total revenue during the last five years, meaning lending operations are First Hawaiian Bank’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last five years, First Hawaiian Bank’s efficiency ratio has increased by 5.6 percentage points, going from 55.1% to 56.9%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

First Hawaiian Bank’s efficiency ratio came in at 55.3% this quarter, beating analysts’ expectations by 297 basis points (100 basis points = 1 percentage point). This result was 4.5 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects First Hawaiian Bank to become less profitable as it anticipates an efficiency ratio of 59.5%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

First Hawaiian Bank’s EPS grew at a solid 6.9% compounded annual growth rate over the last five years, higher than its 2.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For First Hawaiian Bank, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, First Hawaiian Bank reported EPS of $0.59, up from $0.48 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects First Hawaiian Bank’s full-year EPS of $2.05 to stay about the same.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

First Hawaiian Bank’s TBVPS was flat over the last five years. However, TBVPS growth has accelerated recently, growing by 15% annually over the last two years from $10.62 to $14.05 per share.

Over the next 12 months, Consensus estimates call for First Hawaiian Bank’s TBVPS to grow by 6.9% to $15.02, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, First Hawaiian Bank has averaged a Tier 1 capital ratio of 12.8%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, First Hawaiian Bank has averaged an ROE of 10.1%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for First Hawaiian Bank.

We enjoyed seeing First Hawaiian Bank beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.6% to $24.31 immediately following the results.

Updated: December 3, 2025 at 11:25 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

First Hawaiian Bank falls short of our quality standards. For starters, its revenue growth was weak over the last five years. And while its expanding net interest margin shows its loan book is becoming more profitable, the downside is its net interest income growth was weak over the last five years. On top of that, its TBVPS growth was weak over the last five years.

First Hawaiian Bank’s P/B ratio based on the next 12 months is 1.1x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $27.33 on the company (compared to the current share price of $25.30).